Position paper on crypto assets

Created by the Intergovernmental Fintech Working Group (IFWG), this position paper presents the South African policy position on crypto assets. Recommendations include, among others:

  • cryptocurrency should remain without legal tender status
  • restrictions until policy and regulation is finalized
  • a regulatory sandbox approach be used with regard to cryptocurrency, crypto assets and payments

Excerpts from the paper appear below

Such policy stances should enable the development of a regulatory framework, including suggestions on the required regulatory changes to be implemented. This position paper focuses exclusively on non-government, or non-centralbank-issued, crypto assets. It does not address central-bank-issued digital currencies, including central-bank crypto currencies.

At the start of 2018, a joint working group was formed under the auspices of the IFWG to specifically review the position on crypto assets. The members of the IFWG are represented on this working group, referred to as the Crypto Assets Regulatory Working Group (CAR WG). The objective of the CAR WG is to formulate a coherent and comprehensive policy stance on crypto assets, while ensuring the continued integrity and efficient functioning of financial markets, maintaining financial stability, protecting the rights and interests of customers and investors, and combating illegitimate cross-border financial flows, ML/TF.

The CAR WG released a consultation paper at the start of 2019, which provided an overview of the perceived risks and benefits associated with crypto assets, discussed some of the available regulatory approaches, and presented initial recommendations to industry participants and stakeholders. The consultation paper offered an opportunity for industry participants and stakeholders to provide input to formulating a revised policy position on crypto assets. The regulatory authorities considered these comments carefully in drafting the position paper.

In summary, crypto assets and the various activities associated with this innovation can no longer remain outside of the regulatory perimeter. Clear policy stances on the variety of emerging use cases must be taken in order to deepen regulatory certainty.

 

The CAR WG is following a structured approach in developing recommendations. Its approach can be illustrated in terms of three pillars.

Pillar 1: The descriptive characterisation of crypto assets and related activities. This was achieved through the issuance of a consultation paper to the industry at the start of 2019. It has been noted that, due to the evolving nature of crypto assets, continuous analysis is required to identify and investigate other developing crypto asset activities.

Pillar 2: The identification of the critical areas of risk, and the development of mitigating measures to address these areas of risk through regulatory intervention. This position paper highlights these critical risk factors and the recommendations towards a regulatory framework.

Pillar 3: The continuous monitoring of crypto assets and related activities, and the identification of the evolution of channels for the possible transmission of risks to the financial sector and the economy. A monitoring programme should be implemented by the regulatory authorities for crypto assets.

In order to develop regulatory and policy responses to the emergence of crypto assets in South Africa, the CAR WG conducted a functional analysis of crypto assets. This means that the economic function of crypto assets was assessed, rather than the specific technology applied or the entity involved. From this viewpoint, the following five crypto asset specific use cases were identified: (i) purchasing/buying and/or selling; (ii) payments; (iii) capital raising through ICOs15; (iv) crypto asset funds and derivatives; and (v) market support.

 

The purpose of this position paper is to present the South African policy position on crypto assets. Such policy stances should enable the development of a regulatory framework, including suggestions on the required regulatory changes to be implemented.

This position paper focuses exclusively on non-government, or non-centralbank-issued, crypto assets. It does not address central-bank-issued digital currencies, including central-bank crypto currencies.

 

The Intergovernmental Fintech Working Group (IFWG) was established, comprising members from NT, SARB, FSCA and FIC. At the start of 2018, a joint working group was formed under the auspices of the IFWG to specifically review the position on crypto assets. The members of the IFWG are represented on this working group, referred to as the Crypto Assets Regulatory Working Group (CAR WG). The objective of the CAR WG is to formulate a coherent and comprehensive policy stance on crypto assets, while ensuring the continued integrity and efficient functioning of financial markets, maintaining financial stability, protecting the rights and interests of customers and investors, and combating illegitimate cross-border financial flows, ML/TF.

Document Details

Title (Non-English): 
Position paper on crypto assets
Document Type: 
Doument Author (Entity): 
Authoring Country: 
Originating Country or Trade Block: 
Issue Status: 
Year of Document: 
2020
Date of Document: 
Friday, February 28, 2020
Document Authors: 
Intergovernmental Fintech Working Group (IFWG)
Language (This Document): 
English

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